Jennifer deposits $1,000 into her bank. The reserve requirement is 15%. If the bank holds no excess reserves:

Its loans will increase by $850, and its requried reserves will increase by $150.

Suppose the Federal Reserve sells $1,000,000 of U.S. government bonds. We would expect:

A decrease in the money supply.

M-1 is composed of:

Currency (held by the public), demand deposits, travelers checks, and other checkable deposits.

If the Fed wishes to reduce the money supply it would most likely:

Sell securities through its open market operations.

What is the primary purpose of the lengthy terms of the members of the Board of Governors?

To insulate them from short-term political pressures when they formulate monetary policy.

What is fractional reserve banking?

A system in which banks maintain only a fraction of deposits as reserves.

What is the most important function of the Federal Reserve?

Conducting the nation's monetary policy.

Balances in bank accounts that depositors can access by writing a check are known as:

demand deposits

The primary function of the Federal Open Market Committee is to:

Direct the buying and selling of U.S. government bonds, which is the primary instrument of monetary policy.

What is an asset for a bank?

loans

Suppose that a local bank has made a $100,000 loan. How much money has this bank initially created?

$100,000

Suppose the Fed purchases $600 million of U.S. government securities from securities dealers who deposit the entire proceeds of the sale into banks. If the reserve requirement is 20%, banks will now have:

$120 million in required reserves.

Sara saves 10% of each payceck so she can tour Europe two years from now. In this example, money is functioning as:

A store of value.

Assume Bank A receives a deposit of $4,000. If the required reserve ratio is 15%, how much can Bank A loan out?

$ 3,400

Suppose the Fed decreases the reserve requirement from 10% to 9%. What will occur?

Bank excess reserves will increase.

Which of the following financial assets is considered to be the most liquid?

At one time, the country of Spain had no banks, but had currency of $10 million. A banking system was established w/ a reserve requirement of 20%. The ppl of Spain deposited half of their currency into the banking system. If the banks do not hold excess reserves, what is Spain's money supply? now?

$30 million

What function does money serve when it used to measure the prices of different goods and services?

Standard of value

How long is the term for the Board of Governors?

14 years

If the economy is stuck in a recession, an appropriate policy for the Federal Reserve might be to:

Assume that a bank has demand deposits of $300,000, total reserves of $75,000 and a reserve requirement ratio of .15 (15%). This bank can safely lend:

$30,000
The bank’s required reserves are .15($300,000) = $45,000. The difference between total reserves and required reserves, $75,000 - $45,000 = $30,000, is its excess reserves, which is the total amount the bank can lend.